The top 5 things people don’t understand about Hashgraph

by May 13, 2019Hashgraph 101

Summary: The Hedera Hashgraph public distributed ledger is a breakthrough network in computer science, achieving some of the highest metrics in speed, scale and security by design. Using parallel transactions, without the constraint of using slow, bundled and synchronized ‘blocks’, Hashgraph can achieve amazing features without sacrificing any of the three major issues of decentralized networks.

However, because the claims of the Hashgraph algorithm are so much greater than current blockchain (i.e./ Bitcoin 7 TPS <<<< Hashgraph 100K TPS), it is hard for many to believe the White Paper. However, the main net has been created, is functional and actively in Community Testing development.  Phase 1 of Hedera Testing was a success with no major reported failures. Transactions occurred within a few seconds and no confirmations of any transactions were necessary since the algorithm achieves 100% finality with all events.

Although the Hedera network was launched in August 2018, many new events have transpired such as the first Governing Council Member announcements, Community Testing, Wallet creation and more. However, due to the extended development phase, many other issues of fear, uncertainty and doubt (FUD) have occurred in the active Hashgraph community. Social media sites such as Twitter, Telegram and Reddit, have a set of recurrent themes that continue to spread FUD. These will all be individually addressed below.

Is Hashgraph Centralized?: The definition of decentralization is an evolving set of properties of the underlying consensus mechanism, distribution of nodes, governance structure and distribution of cryptocurrency. Technically, an organization or network is ‘decentralized’ if there is no single, central authority in charge.

However, beyond this distinction there is no hard definition to compare different networks too. If one inspects each variable of the network separately, the collective degree of decentralization can be appreciated. As this term evolves, many projects will test their ideas and the market will decide what is ultimately useful and by trial and error the best will survive.

Achieving full decentralization in scale, security, stability and governance without sacrificing any one aspect is the main difficulty for blockchain, but is overcome in Hashgraph. The trilemma is solved and the Pathway to Decentralization is easily achievable by the Hedera network in the prescribed roadmap.

 Hashgraph Permissioned Nodes?: The pathway to full decentralization will begin with Phase 1, which has a fixed set of permissioned nodes, 39 Members in total, that will run the network and be hosted by the Governing Council Members. Due to this distribution, which happens to be greater than the EOS network of only 21 Block Producers, makes Hashgraph more decentralized than a top 5 crypto platform.

The next phase of Node Topology, or design is Phase 2, where trusted organizations with stake in the form of their entity built on Hedera Hashgraph will be allowed to host nodes. These individuals or organizations will not be Council members, but will be allowed to earn fees and expand the number of nodes in the network.  

Finally, in Phase 3, global permissionless nodes will enter and earn fees as well. Since Hashgraph uses a proof-of-stake (PoS) consensus, this does not require expensive computers and can permit millions of nodes by staking. This will achieve the greatest degree of decentralization while avoiding concentrations of mining pools like in blockchain, since Hashgraph uses PoS.This image has an empty alt attribute; its file name is hashgraph-nodes-2.png

Hashgraph Controlled by Corporations?: The Governance model of Hedera allows multinational, multi-sectoral and geographically-distributed mega-cap trusted corporations and organizations to join its 39 member Council. These Governors will be limited to 2 terms, each 3-years long and dependent on election. 

Each Hashgraph Council member will be able to vote with no more than 2.56% of total majority. Thus, Hedera is substantially distributed in Governance, imitating the successful governance model employed by the Visa network decades ago. Each Council member will be able to earn fees for hosting nodes, but will have no amount of the Hashgraph Treasury. These members will only be stewards of the Treasury, which is reserved for community development, employment benefits, testnet accounts and hackathons.

Considering that projects like Bitcoin and Ethereum are open-source with no structured governance, this leads to operational inefficiencies in decision-making that makes updates difficult to implement and enforce on nodes for uniformity. For instance, in the EOS network, an update was not confirmed with one of the 21 Block Producers, resulting in a double spend that cost nearly $7 million USD.

Hashgraph has strong distributed governance that allows megacap corporations to invest, build and expand the DLT ecosystem with globally-scaled enterprise solutions. These corporations are the backbone of the global economy and are trustworthy by their public reputations, which have much more at stake than a simple Block Producer or Anonymous Node Host.

 Hashgraph is Patented?: One of the greatest misunderstandings of the Hashgraph network in social media is the reason that the Hashgraph consensus algorithm is patented. This legal control is just one way that the Governing Council will be able to secure and safely manage the Hedera network and prevent any opportunistic forking, or copycat into a rival platform. It is without a doubt that the endless series of Bitcoin forks have fragmented and confused the crypto community.

According to megacap corporations and enterprises that would like to utilize the power of distributed ledgers, a major barrier is the ability to lose the network to a fork. This would mean every enterprise that spent millions on the network, will have to spend even more with each fork. These expenses would be used to help educate, reconfigure and re-advertise their services without any control on the time or frequency of the number of forks.

 With the legal control of a patent to prevent this network chaos, Hashgraph has the unique ability to manage a major risk that is uncontrollable in all other cryptocurrency platforms. This is a major feature difference in Hashgraph that is believed to be the necessary requirement to gain enterprise global adoption of cryptocurrency.

 Hashgraph for Profit?: What people misunderstand about the Hashgraph algorithm is that it is a strong advantage for network security and not an opportunity to just gain profit from its control. The only profit made will be a small percentage of Hedera fees to the Founding Swirlds, Inc., who will remain a Council member with the platform.

Otherwise, the node fees are the only financial benefits to all other Council Members. It is clearly in line with current industry standards for inventors to achieve royalties of their innovations in the range of 3-10%. Without these inventions, and the protection of early investment through the US Patent Office, innovation would not be incentivized to make the wonderful technological discoveries and devices that have revolutionized the modern world.

Consider also that Hedera Hashgraph, LLC did not run a risky fundraising ICO through an ERC-20 for the exact purpose of not taking easy money without a mainnet. Instead, they chose a regulatory-compliant pathway with the SEC and had to turn many away from it, due to the SEC’s harsh restrictions on investments. Also, the platform fees will be so tiny, nearly the equivalence of a thousandth of a US penny.

If Hashgraph was just about profit, these fees would have been scaled to the relatively high fees of networks like Bitcoin, Ethereum and others which are 100’s to 1000’s of times higher. Hashgraph plans on being a 100-year platform and with the right controls, low fees and governance it seems that they have the winning combination and X-factor it will take to gain global enterprise adoption of the digital asset economy.

Ħello Future.